Scandal-ridden Uber receives a fresh lease of life with investment from SoftBank

After a rough year, Uber is all set to start 2018 with a bang. On Thursday, December 28, 2017, Uber and SoftBank announced that the Japanese tech titan is going to take on a large stake in the US ride-sharing firm.

A bumpy ride for Uber

Uber’s challenges in 2017 started after Donald Trump signed an executive order barring travellers from seven Muslim-majority countries from entering the US. Protests erupted and the New York Taxi Workers Alliance instituted a temporary boycott of pickups at JFK Airport. Uber, on the other hand, continued to serve customers at the airport and even deactivated its surge-pricing. Many perceived this as an attempt by Uber to profit from the travel ban. Consequently, many users uninstalled Uber from their phones.

Weeks after the boycott, Uber was entangled in a harassment controversy which painted the company as dysfunctional and morally-bankrupt. A few months later Travis Kalanick, the founder of Uber, was ousted as CEO. Finally, towards the end of the year, Sadiq Khan, the mayor of London, said that he intended to refuse to renew Uber’s license as the company had failed to demonstrate that it was ‘fit and proper’ to conduct business in the city.

A ray of light

On December 28, 2017, Uber and SoftBank announced a deal which could help smoothen the road ahead for the scandal-ridden startup. A SoftBank-led consortium agreed to invest at least $8 billion for a roughly 15% stake in Uber. The majority of that investment will be made by buying up shares held by existing Uber shareholders at a discounted value of $48 billion. SoftBank is also going to invest $1.25 billion in Uber at a valuation of $70 billion. SoftBank Investment Advisers CEO, Rajeev Misra said, “We are appreciative of the support from Uber’s shareholders in the successful tender offer and look forward to closing the overall investment in January.”

The deal will help to bring in additional capital that will help Uber to fuel its expansion and make investments in technology. The direct investment of $1.25 billion will help the company to move up towards its planned Initial Public Offering (IPO) in 2019. One Uber spokesperson expressed confidence in the deal, “We look forward to working with the purchasers to close the overall transaction, which we expect to support our technology investments, fuel our growth, and strengthen our corporate governance.”

The company also set in motion a slate of governance reforms–expanding the board to seventeen and revoking the outsized voting power given to early backers—that were dependent on the deal. Moreover, Uber’s largest venture capital backer, Benchmark, will also close the legal case it has been pursuing against Travis Kalanick. But, most importantly, the deal pre-empts arch-rival Lyft from making an arrangement with SoftBank.

Benefits of the SoftBank deal

After the deal is completed, SoftBank’s founder Masayoshi Son will become an influential investor in the ride-sharing sector. He will hold a stake in five of the world’s biggest startups, including the market leaders in China, India, Southeast Asia, Brazil and the US. The deal will not only make SoftBank one of Uber’s largest shareholders but Softbank will also get two seats on Uber’s board. SoftBank’s Investment Advisers CEO Rajeev Misra and the Sprint Corporation’s CEO Marcelo Claure have long been viewed as likely candidates to fill these positions.

Following last year’s setbacks and various lawsuits, Uber is planning to expand by buying up to 24,000 self-driving cars from Volvo. This will shift the company’s model from ride-sharing using freelance drivers to directly owning and running a fleet of cars. Volvo said that it will provide Uber with its XC90 SUVs, equipped with autonomous technology from 2019 to 2021.

Uber’s Jeff Miller described the autonomous Volvo cars as central to the company’s future: “Our goal was from day one to make investments into a vehicle that could be manufactured at scale. It only becomes a commercial business when you can remove that vehicle operator from the equation.” This deal will require a huge capital investment initially. However, once completed, Uber will be on track to make enormous profits at the expense of its redundant drivers.